EUROPE
Why energy must be the core of EU security thinking
Spring 2008
Europe must respond to the growing assertiveness of energy-producing countries with a much more coherent strategy of its own, says Jozias Van Aartsen, a former Dutch foreign minister. Failing to do so, he warns, would be a threat to Europe’s democratic integrity
Commentary:
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In the stand-off between global energy suppliers and consumers, even the European Union needs allies. Some fear that the balance of power has tilted so far in favour of producers that they now use energy policy “as a continuation of politics by other means”. That’s going too far, but it is clear that the EU needs to respond to the current pressure from suppliers with a more coherent international energy strategy. The new policy will have to reach beyond the EU’s borders into south east Europe, the Caucasus, the Middle East and north Africa. It’s not just a matter of protecting EU prosperity. If Europe is unable to withstand supplier tactics that threaten our interests, it means that we will have to battle to support the new democracies that are amongst our friends. The stakes really are that high.
It’s a sad truth that no democracy can be truly sovereign unless, broadly, it enjoys independence in energy. Supply constraints already inhibit freedom of action in many states, both inside the EU and out. Policy choices in south-east and central Europe, for example, have been dictated by necessity or post-war relations with suppliers. In the Caucasus, there has been a long battle to break free of integrated gas and electricity systems that have been manipulated for political reasons. The gas price rows between Ukraine and Russia are well known, and Russia has blocked oil deliveries with impacts in many EU Member States.
Less widely appreciated are the subtle, long-term political pressures on governments whose national energy systems are flawed. Many European countries fail to provide affordable energy to their citizens, leading to preventable deaths, mostly from cold in winter, economic losses and sometimes even political turmoil. No single economy can deal with these problems alone. There must be a collective effort to improve the situation.
In the long-term, the aim of an EU international energy policy must be to establish a framework to develop an integrated market stretching from Europe to central Asia, the Middle East and north Africa. The objective is not just to make connections between the EU and major energy producers in this region, and thus protect our supply lines. It is also to develop long-term energy security in order to promote industrial development, economic expansion and political stability in partner countries. This will create sound investment opportunities and also buffer the EU from migration pressures. The EU has a great interest in liberating countries from structurally difficult relationships with their energy suppliers and ending dependencies on single external energy sources. We want our neighbours to be free to make their own choices; that is why we must secure integration across the whole area on which we depend for our economic well-being.
There would, naturally, have to be different levels of cooperation and integration in this new energy paradigm. These can be pictured as a series of concentric rings, with the EU in the middle. Within this central EU ring, there will be a highly complex and regulated internal energy market which is appropriate to our industrialised, prosperous and information-rich societies; here regulations, rules and technical parameters will be continually updated.
The next ring would contain countries that want to achieve energy sovereignty and are prepared to develop the legal and supranational means to achieve it. This implies they would be willing to integrate their energy markets and tackle problems from a common perspective, rather than every state looking after itself. They would also have to make basic commitments to democratic values. The European Energy Community is one example of how this might work. It groups the EU with former Yugoslavian states and Albania that are still outside the Union. Ukraine, Moldova and Turkey have also been invited to join and I hope they will accept. I also think Georgia and Azerbaijan should be brought in and that the EU should consider how to associate Mediterranean countries with this community as well.
An invigorated Energy Community could become a new zone of international prosperity. At the moment, it focuses on gas and electricity. But in the 1950s, Europe only cooperated over steel, coal and agriculture; 50 years later, the European Union is a region of unprecedented wealth and political collaboration. In time, the Energy Community could become a vehicle to extend peace and prosperity to an even greater number of states; it could provide a solid basis for increased investment, economic integration and political co-operation in non-energy areas.
The Energy Community treaty already contains a solidarity and security mechanism, based originally on Article 5 of the NATO treaty. If this simple mechanism were elaborated into concrete policies and protocols, it could form the core for a new deal on energy security. And if we adapt the Energy Community rules to take into account the needs of potential new members, it could both protect its core principles and allow regional and local variations. We would, however, have to make it absolutely clear that membership of the Energy Community would not be a second-class substitute for joining the European Union – promises are promises, and must be kept. Countries that have been promised eventual membership of the EU cannot be let down.
Beyond the circle of potential Energy Community members is a third and final outer ring of countries. Here, cooperation is mostly linked to development and creating the pre-conditions for basic investment – including EU financial guarantees for partner countries - rather than more regulation. I believe we need to do three basic things for these states: set minimum legal standards for investment; increase cooperation between these countries, donors, banks and potential energy investors at home and abroad; and, finally, share a commitment to good governance. The door must also be kept open for countries to graduate into the Energy Community if they want. For countries that are especially important to us, enhanced co-operation, in the form of an Energy Security Partnership, can be envisaged – such a partnership would consist of a simple bargain of ensuring security of supply in return for security of demand. The EU must assure its partners of a concrete financial commitment.
Again, there is a precedent for very broad international cooperation over energy: the Energy Charter. Some 51 European and Asian countries, plus the EU, have signed the Energy Charter Treaty. Others are waiting in the wings. Its main job is to set down common rules to protect long-term investments in high-risk and capital-intensive projects, which are typical all along the energy supply chain. It also promotes secure transit, energy efficiency and environmental protection, thereby encouraging energy and environmental trade to the benefit of producers, consumers, investors and member countries.
The Energy Charter has some basic challenges to face that must be resolved and become part of a blueprint for the way forward. Treaty countries need to have the minimum legal regime in place that will protect investors from both legal and de facto expropriation, either from regulatory changes or administrative fiat. The Charter’s coverage must also be extended into the Mediterranean region. The Energy Charter must recognise the change in power relations between producers and consumers, and facilitate a fairer deal for all concerned. I know that influential states that are friends of the Energy Charter treaty share this view. I also believe the Energy Charter as an institution must stop trying to sort out problems it cannot resolve, including differences between the EU and Russia. We do not need to change the Charter Treat – it is already very good – but we do need to make a renewed commitment to it. Above all the Charter needs new and vigorous leadership and a Secretariat that takes a lead in developing the Charter itself.
So lastly Russia. We have a chance today of engineering a win-win solution for EU-Russia energy relations. Whatever the headlines, the EU is stuck with Russia and Russia is stuck with the EU – neither has an alternative. Russia has gas, oil and uranium, and the EU has the largest consumer market in the world – and the most lucrative. What can we do? The EU can be frank – Russia must stop using energy for political reasons. If it does not, the urge for us to diversify will increase and our determination to decrease our exposure to Russia will continue. If we can find a way to depoliticise – ideally through a legal agreement - the relationship and have equitable investment relations in the energy sector, then we – the EU – can conceive of increasing our exposure to the Russian market – and to have free investment from Russia into the EU.
It is this sort of linkage - between energy and the economy, investment and the law - that makes international energy policy so vital to the European Union. The challenges of climate change increase the pressure on the Union to act. Integration need not be a one-way street: the EU can learn from its neighbours as well as vice versa. However, the EU must accept that our neighbours’ energy security is our own energy security. We must embrace interdependence and extend energy security guarantees to all our neighbours; if our suppliers can do the same, so much the better. The alternative looks bleak. If the EU becomes powerless in the face of external suppliers and accepts every move they make, if we lack the diplomatic strength to stand up to them, then we will relinquish the possibility of defending our democratic values. International energy policy really is as important as that.